Gujarat AAAR: 18% GST Applies On Supply Services by Sub-sub Contractor to Sub Contractor

In a recent ruling, the Gujarat Appellate Authority for Advance Ruling (GAAAR) held that 18% Goods and Services Tax (GST) is pertinent to the services supplied via the sub-sub-contractor to sub-contractors.

M/s Shreeji Earth Movers (sub-sub-contractor), the petitioner who is the work contractor and operates and performs the composite supply of works contract as specified in Section 2(119) of Central Goods and Services Tax, 2017 and was awarded a sub-contract by another works contractor to execute the original work of civil construction works supply to the Irrigation department of Gujarat

M/s. JSIW Infrastructure Pvt. Ltd (Contractor/original contractor), obtains the original contract through the irrigation department for the construction of the pumping station and supplying and laying the MS pipeline with all associated works and others along with the maintenance of the commissioned project for 10 years.

M/s. JSIW Infrastructure performed the same contract with M/s. Radhe Construction (Subcontractor). The subcontractor and the appellant signed the same contract. Therefore, it is without a shadow of a doubt that the appellant obtained the contract through a subcontractor who in turn acquired it from the primary contractor.

In the instant case, the petitioner has referred to Sr. No (iii) of GST Notification No.20/2017- Central Tax (Rate) on 22.08.2017 to provide that the rate pertinent to them is l2%.

The bench, the entry No. 3(iii) of the subject Notification furnishes the fbr rate of tax at l2% When any taxable person is furnishing the composite supply of works contract as illustrated in section 2(119) of CGST Act, 2017 to Central Government, State Government, Union Territory, a local authority or a Governmental Authority or a Government Entity by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation or alteration of:

• A historical monument. archaeological site or remains of national importance, archaeological excavation. or antiquity mentioned under the Ancient Monuments and Archaeological Sites and Remains Act. 1958 (24 of 1958);
• canal, dam, or other irrigation works;
• pipeline, conduit, or plant for (i) water supply and (ii) water treatment. or (iii) sewerage treatment or disposal.

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However, it has been discovered that the appellant has no work order issued in their favour by any of the aforementioned governmental entities.

The appellant further asserted that the GST rate applicable to the principal contractor should be collected from subcontractors, as indicated in the press release of the GST council’s 25th meeting on January 18, 2018.

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The benefit of the lower GST rate solely applies to the primary contractor’s subcontractors; second-level subcontractors are not eligible.

After examining the arguments, the bench of Samir Vakil and Vivek Ranjan figured that the petitioner is subject to tax discharge at an 18% rate under Entry No. 3(ii) of Notification No. ll/2017-CT(R) of June 28, 2017, as amended by Entry No. 3(xii) of the aforementioned Notification.